Apartment deal volume reached record levels last year, with 3% year-over-year (YOY) sales growth for 2016 on a volume of $158.4 billion nationwide, according to the year-end U.S. Capital Trends Apartment Report from real estate data firm Real Capital Analytics (RCA). The apartment sector was the only major property sector to post positive growth last year, and prices are still rising, with a projected 12% YOY growth in the preliminary run of the Moody’s/RCA Commercial Property Price Index.

Portfolio- and entity-level transaction volume fell 3% YOY, on sales of $41.2 billion, while individual-asset sales grew 6% YOY, on sales of $17.2 billion. This is the highest level of annual sales volume on record for these types of deals. Sales activity rose 4% YOY for garden apartments (sales of $104.7 billion), while mid- and high-rise activity rose only 1% YOY (sales of $53.7 billion).

Deal volume in the six major metros of Boston; New York City; Washington, D.C.; San Francisco; Los Angeles; and Seattle fell, by 13% YOY, while volume in the nonmajor metros rose, by 13% YOY. Value-add properties experienced double-digit deal- volume changes across garden and mid-/high-rise properties alike, likely indicating that investors are more willing to take market risk than value-add risk.

Of the 25 largest U.S. markets, 11 posted record levels of deal volume across all apartment types. All, except Seattle, are among the nonmajor metros. The Dallas market saw the highest level of deal volume, at $9.3 billion, with 12% YOY growth. Manhattan came in second, with $9.2 billion in deal volume but a 34% decline in YOY growth, while Atlanta came in third, with 27% YOY growth and $8.6 billion in deal volume. High transaction levels in Dallas and Atlanta were led by megadeal activity. The East Bay market in the San Francisco metro area was the leader for price growth last year, at 30% YOY, whereas, in the New York and D.C. metros, price growth pulled back.

Student housing deal volume rose 62% YOY on sales of $9.6 billion. Much of this deal volume was driven by $5.6 billion in megadeals, a 227% rise in megadeal activity YOY. These transactions made up 58% of all student housing deal volume last year. Single-asset activity fell by 5% YOY, on sales of $4 billion, still well above the $2.5 billion average from 2012 to 2014. In senior housing, deal volume fell 34% YOY, on sales of $14.5 billion.

Starwood Capital Group led the apartment market in investment volume bought, while Equity Residential led in investment volume sold, both by a wide margin. This is likely because of a $5.3 billion portfolio transaction between Equity and Starwood last year.

Fourth-Quarter Performance

Despite the records set for 2016 overall, deal activity fell by 15% YOY, on sales of $45 billion, in the fourth quarter. Both single- asset and portfolio-/entity-level transactions experienced some decline. Megadeals fell by 24% YOY for the quarter, on sales of $13.7 billion, although RCA notes that the sale of the $7.6 billion Home Properties apartment portfolio in 2016 may be responsible for the drop.

Price growth for properties in the six major metros stabilized in Q4, at 11% YOY, following some investor uncertainty, which resulted in a slower rate of growth in the first quarter. Nonmajor metros, which didn't experience the same volatility, saw 12% YOY price growth.

Cap rates for apartments in the six major metros averaged 4.5%, and for the nonmajor metros, 6.4%. Cap rates were flat into the fourth quarter, despite the changes anticipated from a 90-basis-point increase in interest rates following the U.S. presidential election.